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Charith Kapukotuwa

Finance for Managers


Dr. Richard Koza
Week 1 Research Assignment

The Field Of Finance


The field of finance is directly related to economics and accounting; therefore,
it is very important for financial managers to understand the bonds between these
fields. There are number of jobs available within the field of finance, such as
management analyst, financial examiner, financial analyst, logistician, budget
analyst, personal financial adviser, accountant or auditor, market research analyst,
corporate financial officer, banker, stockbroker, portfolio manager, and investment
banker. In order to work and compete in the field of finance, employees need
necessary skills, such as communication skills, relationship-management skills,
marketing and sales skills, project management skills, organizational skills,
attention to detail, problem solving skills, technological knowledge, tenacity and
ethics, anticipation, analytical skills, and quantitative skills.
The chapter one of the textbook is about the goals and functions of financial
management. In the beginning of the chapter, it states that the field of finance is
closely related to economics and accounting. Economics mainly provides a structure
for decision making in the area of risk analysis, pricing theory through supply and
demand

relationship,

comparative

return

analysis,

and

many

other

areas.

Accounting in the other hand states that accounting is the language of finance

because it provides financial data through income statements, balance sheets, and
the statement of cash flows (Block, Hirt, & Danielsen, 2009)
The chapter next talks about evolution of the field of finance. According to
the chapter, the field of finance has developed and changed over time. One of the
main advances was the decision-oriented process of allocating financial capital for
the purchase of real capital. The emphasis is also moved from that of the outsider
looking at the firm, to that of the financial manager making tough day to day
decision that would shape the firms performance (Block, Hirt, & Danielsen, 2009)
The chapter also talks about modern issues in finance; the chapter further
states that modern financial management has focused on risk-return relationships
and the maximization of return for a given level of risk. This section of the chapter
also states that inflation has always been a key variable in financial decisions, and
inflation remained relatively high until 1982 when the U.S. economy entered a
phase of disinflation. The impact of the internet is another topic we can find on this
section of the chapter; the internet craze of the 1990s created a new economy with
the crash of the stock market from its peak in the year 2000. Also, the rapid
expansion of the internet and its acceptance by the U.S. population has allowed the
creation of many new business models and companies (Block, Hirt, & Danielsen,
2009)
The chapter next talks about the functions of financial management; it is
financial managers job to perform functions related to financial management.
Financial managers are responsible to allocate funds to current and fixed asset to
obtain the best mix of financing alternatives, and to develop an appropriate
dividend policy within the context of firms objectives. On this section of the chapter

also talks about the forms organization; the finance function carried out within a
number of different organizations, but most importantly the sole proprietorship, the
partnership, and the corporation has the primary interest (Block, Hirt, & Danielsen,
2009)
The chapter next talks about corporate governance; this section of the
chapter states that the corporation is governed by the board of directors, led by the
chairman of the board. This section of the chapter also talks about the Agency
theory, which examines the relationship between the owners and the managers of
the firm. The Sarbanes- Oxley Act is another topic that we can identity on this
section of the chapter; this act passed by the U.S. congress in the year 2002 to
make sure that publicly traded corporations accurately present their assets,
liabilities, and equity and income on their financial statements (Block, Hirt, &
Danielsen, 2009)
The chapter next talks about goals of financial management; the most
important goal for financial management is to earn the highest possible profit for
the firm. This section of the chapter also talks about the valuation approach,
maximizing shareholders wealth, management and stockholders wealth, and social
responsibility and ethical behavior. The valuation approach is designed to answer
the question of how to use profits in setting a goal for the firm. According to the
chapter, shareholder wealth maximization is not a simple task because financial
managers cannot directly control the firms stock price, but can only in a way that is
consistent with the desires of the shareholders. Chapter also states that
management may be more interested in maintaining its own tenure and protecting
private spheres of influence than in maximizing stockholder wealth in the
management and stockholder wealth. Social responsibility and ethical behavior

mainly focus on adopting policies that maximize values in the market in order to
attract capital and provide employment; this considered as the basic strength of the
private enterprise system (Block, Hirt, & Danielsen, 2009)
The chapter next talks about the role of financial markets; financial markets
the meeting places for people, corporations, and institutions that need money or
have money to lend or invest. There are two kinds of financial markets; one is public
financial markets and the other one is corporate financial markets. Public financial
markets are ones that barrow funds for highways, education, welfare, and other
public activities. Corporate financial markets are the once that raise funds within
the corporation. This section of the chapter also talks about structure and functions
of the financial markets, allocation of capital, institutional pressure on public
companies to restructure, internationalization of the financial markets,

and the

internet and changes in the capital market. On the structure and functions of the
financial market section of the chapter states that financial markets can be broken
into many distinct parts, such as domestic and international markets, or corporate
and government markets, or money and capital markets. On the allocation of capital
section of the chapter states that money and capital markets allocate funds to the
highest quality companies at the lowest cost and to the lowest quality companies at
the highest cost. This section next talks about institutional pressure on public
companies to restructure; restricting can result in changes in the capital structure
and it can also result in the selling of low-profit-margin divisions with the proceeds
of the sale reinvested in better investment opportunities. This section next talks
about internationalization of the financial market; this section states that the growth
if the global company has led to the growth of global fund raising as companies
search for low-priced sources of funds. This section also talks about the internet and

changes in the capital market; this section states that the biggest impact of the
internet has been in the area of cost reduction for trading securities (Block, Hirt, &
Danielsen, 2009)

Work Cited

Block, S. B., Hirt, G. A., & Danielsen, B. R. (2009). The Goals and Functions of Financial
Management. In Foundations of financial management (pp. 4-19). Boston: McGraw-Hill
Irwin.